3 Things You Have to Know About the Bogus 'Fiscal Cliff'
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All Republicans have (or at least declare) an intensely fervent faith in their Four Pillars of Failed Wisdom. The first two are that higher taxes hurt the economy and taxes cuts create growth. It’s hard to understand how anyone who has witnessed the last 12 years can possibly still believe that. Growth with Clinton’s tax hikes. Recession, then bubble, crash, bank failures, and recession with Bush’s tax cuts. The limp response to the continuation of the Bush cuts, Obama’s first round of cuts (the “stimulus” package was about one third tax cuts), and his second round (Social Security).
The other two pillars are that government spending hurts the economy, while cuts in government spending create growth.
Here’s one simple fact to look at: Unemployment.
In the last few years there have been massive cuts in public sector employment. Many people will say that it was a necessary response to economic conditions. But in previous recessions and depressions, we increased public sector jobs. For example, the only job growth in Bush’s first term was from government employment. The public sector job cuts in this cycle were driven by ideology and by politics, not by economics.
If we restored public sector jobs to where they were in 2008, the unemployment rate would be 7.1 percent.
If we cut government spending we destroy jobs. Both direct public sector jobs and private sector jobs created by government contracts. You may or may not like many of the things that government pays for, like making bombs and building bombers, but those programs do employ a lot of people.
But what about the deficit?
Shouldn’t we be hysterically worried about the deficit? There’s a constant chorus, “I don't want to leave this mess to my grandkids.” You see it on blogs, “…. our country is literally mortgaging our children’s future.”
You hear it from politicians, “We continue to increase the financial burden our grandchildren will have to bear ... "
On TV commercials, “I don't want my grandchildren and great grandchildren hopelessly in debt …”
On talk radio and talk TV, “Under Obama, $5.3 trillion has been ruthlessly stolen from our children and our grandchildren.”
In newspapers, and in the halls of congress, “Debt … grandchildren … deficit … grandchildren.”
Here’s a big clue that the deficit problem is not exactly as horrid as it’s painted. After they whine about grandchildren and debts, I have never heard a single one these people say, “Therefore, let’s pay for things now. Come on people, if we don’t want debts, let’s dig a little deeper.” Which is what you do if you actually care.
That does not mean that deficits, like debts of any kind, can’t be a problem. They can be.
The mistake is to talk about deficits as if we were talking about our personal family budgets, what we owe on our credit cards, car loans, and mortgages. Most people who have regulars have a fairly fixed income. Even if they get raises, they’re within a narrow range. If debts get too high, there’s no way to pay them off. If income goes down, or it stops, even for a brief period, those debts become very serious problems.
But a government isn’t a salaried employee. Or someone working for wages.
Government borrowing, debts and deficits should be thought about as similar to business borrowing and corporate debt. Businesses usually get started with borrowed money. If they’re slow in getting to where they can pay the loans back, they’ll often borrow more. Once they are on schedule to pay off those loans, they may borrow for further growth. Meantime, they will have a separate credit line to cover the time gap between expenses and collections. With some rare exceptions (like a very profitable company in a shrinking economy), businesses are in a constant state of debt.